The fix for the UK’s housing shortage may solve California’s, too

As the economy begins to take off, homebuyers are finally ready to enter the market and renters are ready to move out on their own. But a noticeable lack of supply is causing difficulties.

There are 9% fewer homes for sale across the U.S. as of January 2016, according to Zillow. It’s much worse in California, with home inventory averaging 15%-30% below last year, depending on the city.

The short supply of homes relative to growing households produces more competition, leading to higher home prices and rents. In California, home prices are 7%-11% higher than a year earlier as of January 2016.

A similar lack of supply threatens Britain’s housing market. But the British are shaking things up to induce more home building. Can California’s learn something from abroad?

How others are encouraging building

In the United Kingdom, the government recently passed new laws to encourage building. They set a target number of new homes to be constructed each year and will provide incentives to meet their target. To achieve this goal, the government will also be given the power to loosen zoning restrictions and to overrule local not-in-my-backyard (NIMBY) advocates.

However, this alone may not do the trick to ease home prices and overcrowding in particular from surging out of control. The government needs to encourage current homeowners to sell, particularly older homeowners who may be sitting on lots of square footage.

A recent article in the Economist suggests Baby Boomers are reluctant to sell today, partly due to the high transaction costs involved in selling. The article reasons homeowners with no children at home are wasting valuable living space in desirable areas, thus driving up home values needlessly. Aging homeowners need to downsize so younger homeowners — with families — can take advantage of the stock of existing homes.

Somewhat closer to home, Massachusetts is proposing to take zoning matters out of the hands of local NIMBYs and address the zoning crisis head-on. If the state bill passes, builders will be able to build denser communities, like multi-family apartment buildings or townhomes, based on demand and not on local opinion. Washington, home to our nation’s “other” tech center, Seattle, has adopted similar planning regulations that have cooled off prices. We can only dream of how a price slowdown in San Francisco would help the local population.

Should California take similar measures?

California’s housing fix

Other states and nations are approaching zoning in a “big government” way, sidestepping local governments. Is this the solution for California’s inventory problem?

It may be a small part of the solution, but only if done right. California is a large state — bigger than Massachusetts and the U.K. put together. Its geography ranges from many populous cities to sprawling suburbs and secluded farmland. Local governments know the unique needs of their cities, and can make decisions to keep living within reach.

But there is a danger in allowing zoning to lie solely in the hands of a local government, too. The danger is a small number of citizens will choose to exclude lower-income households from their community by refusing cheaper housing to be built. After all, the thinking goes, low-income residents can always live in neighboring communities governed by looser zoning laws — right?

Funneling lower-income households into a single, segregated neighborhood perpetuates poverty, which is bad for California. This is why the state requires certain allowances be made for low-income housing, and why many cities choose to make some form of inclusionary housing available to residents.

A simple goal for the number of new housing units in California won’t do, as there’s no guarantee these units will be built in the right places to meet demand (i.e. near the greatest access to jobs). But the state acting to limit the power of local NIMBYs — and letting builders react to local demand — can be a good start.

Home ownership was dealt a serious blow with the last recession, and now we have big government advocates trying to force more rental construction and rental conversions in California cities. Of course every city needs some amount of rental housing stock, but when a city or a neighborhood exceeds 40% rental occupancy, you can see the results plainly in terms of deteriorating housing, increased crime, and code violations.

First Tuesday should be advocating for more ownership housing – affordable condos and homes – rather than encouraging big government to impose more low-end rental housing on cities and neighborhoods.

It’s the underutilizaton of land that is the issue. Smaller homes on “generous” lots is going in reverse. We need high rises with community amenities like schools, parks, gathering spaces, etc. clustered around them. For good examples, look at many urban areas in Europe. We just can’t keep building single-family homes and expect to meet housing demand. Some homes will be built for sure and I don’t expect family lifestyle expectations to change (i.e. desire for single-family house with yard) but density will help relieve a lot of the pricing pressure on certain demographics (younger, less wealthy, seniors, etc.).

Very well put. The goal should be to provide homes that working people in the community can afford to buy. But many communities have made no effort to allow construction of homes that are affordable to those who work in and make the community viable. In fact, a huge percentage of communities have done the opposite and refuse to allow construction of homes that are affordable to those who provide their services. This kind of elitism ruins the community by creating a dysfunctional community and an unhealthy attitude of entitlement.

Featured Comment

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